Employee Recruitment Risks
The legal risks for employers during recruitment processes are not always fully considered until an issue emerges. Risks are present at every stage of the recruitment process, from the nature of the role itself to advertising, interviewing, selecting, and agreeing on an employment contract.
Properly managing employee recruitment risks is the first step for employers to build strong, safe, and productive teams.
The following six recruitment risks need to be managed by employers when seeking to hire a new employee:
- Discrimination claims
- General protections claims
- Employee contract risks
- Pay and entitlement risks
- Work health and safety risks
- Competition and Consumer Act 2010 (Cth)
Failure to manage such risks can spell commercial, operational and reputational risks, beyond the legal issues involved.
Employees vs Contractors
Employees and independent contractors have different rights and responsibilities.
An employee performs work under the direction and control of an employer. An independent contractor has a high degree of control over how they provide services to another person or business. While a contract may clearly specify whether a person is an employee or contractor, the appropriate classification can also be determined by considering:
- level of control over how work is performed
- financial responsibilities
- tools and equipment
- delegation rights
- ongoing or short-term nature of the work
There can be serious implications for businesses and organisations that enter into sham contracting arrangements. In addition to the compensation that may be payable to the individual, courts can impose large penalties on individuals and corporations for knowingly or recklessly entering into sham contracting arrangements.
National Employment Standards
In Australia, 11 minimum employment entitlements must be provided to all employees covered by the National Employment Standards (NES). These minimum employment entitlements will protect full-time and part-time employees if their job falls under the national workplace relations system (i.e., Fair Work Act 2009 (Cth)). Most employees in Australia fall within this category.
Casual employees are only entitled to some of the minimum employment entitlements.
The 11 National Employment Standards are:
- Maximum weekly hours
- Requests for flexible working arrangements
- Converting from casual to permanent
- Parental leave and related entitlements
- Annual leave
- Sick / carer’s leave and other leave
- Community service leave
- Long service leave
- Public holidays
- Notice of termination and redundancy pay
- Fair Work and Casual Employment Statements
Businesses that fail to comply with the NES may face many types of court orders, such as:
- Payment of a fine by individuals or corporations involved in the breach
- Payment by the employer for unpaid or outstanding entitlements (plus interest)
- Undergo training or assessment
- Restrain individuals or corporations from doing, or omitting to do, certain things
- Compensate an employee for loss suffered
- Reinstate an individual back into their job
Employment contracts ought to make the terms and conditions clear for both employers and employees.
Contracts often have the following topics covered (executive contracts typically include additional terms):
Conditions of employment often include clauses related to the duties and responsibilities of the employee, their hours, work location, probationary period, and leave arrangements. Other clauses may relate to the obligations of the employee around confidential information, compliance with workplace policies, privacy, workplace surveillance, and social media.
It is always in the interests of an employer to have terms and conditions in an employment contract that align with the specific needs of the workplace, rather than adopt a generic template that does not take account of business needs.
Depending on the nature of employment, remuneration clauses can deal with a range of issues. It can include specific salary or wage conditions, as well as salary packaging arrangements, expense allowances, discretionary benefits, and casual loadings.
Failure to include all relevant details about remuneration in an employment contract can lead to wage disputes, which can lead to investigations by regulators such as the Fair Work Ombudsman.
Termination clauses in an employment contract can be important for businesses to manage legal, financial, and reputational risks when ending an employment contract. Common clauses include termination options, payment in lieu of notice clauses, as well as other obligations that may have been negotiated such as restraint of trade and non-disparagement clauses.
The absence of properly drafted standard terms can lead to unnecessary disputes between employers and employees.
The standard terms in a contract relate to clauses that make the enforcement or operation of the contract clearer. This may include clauses that make clear the contract is the ‘entire agreement’, whether any waivers, warranties, or acknowledgements apply, as well as what jurisdiction governs the contract and how it may be varied.
Varying Employment Contracts
Business and organisational needs change. The need to vary employment contracts can arise for a number of reasons, such as:
- Changes to an employee’s role
- Work relocations
- Performance target adjustments
- Remuneration changes
There are real legal, financial, and reputational risks for employers seeking to vary employment contracts. This can include breach of contract claims, unfair dismissal claims, and discrimination claims.
Seeking to unilaterally vary an employment contract can constitute a repudiation of the contract and constructive dismissal. For this reason, varying employment contracts is best done through negotiation and agreement between the employer and employee, generally with independent advice being considered by both parties before any changes take effect.